Immunohistochemical analysis demonstrated that UGRP1 protein is expressed, albeit low, in the epithelial cells of E11.5 embryo lungs, where the expression of T/EBP that regulates UGRP1 expression is found. To understand a possible role that UGRP1 might play in early embryonic stages of lung development, lungs from E11.5-12.0 embryos were subjected to ex vivo organ culture in the presence or absence of purified recombinant UGRP1 protein. Since UGRP1 was originally identified as a downstream target gene for T/EBP using suppressive subtractive hybridization between wild-type and T/ebp-null embryo lungs, the latter of which consists of rudimentary bronchi with lean mesenchymal layers and hypertrophic bronchial epithelial cells, we hypothesized that the arrest of branching and development in T/ebp-null lungs is at least partly, if not all, attributed to the deficiency of UGRP1. In order to address this question, T/ebp-null lungs were also subjected to ex vivo embryonic lung organ culture studies. Our results demonstrated that UGRP1 facilitates branching morphogenesis in wild-type embryo lungs and induces branching in T/ebp-null embryo lungs ex vivo, the latter characterized by many pleated and/or dentate epithelia and duct-like structures with increased layers of meshenchyme. Normal epithelial characteristics, such as stratified columnar cells with cilia, appeared in T/ebp-null trachea and lungs upon UGRP1 administration. Increased cell proliferation was demonstrated after UGRP1 treatment, as revealed by the increased expression of phosphorylated histone H3 and Ki-67 in T/ebp-null lungs ex vivo and in vivo, and BrdU incorporation in fetal lung primary mesenchymal cells. These data demonstrate that UGRP1 is a novel growth factor and is one of the major genes responsible for the phenotypes observed in the T/ebp-null lungs. Rad23b, a component of the DNA damage sensor, which is mainly expressed in the lung mesenchymal cells, was identified as a downstream target for UGRP1, responsible for UGRP1's growth factor activity. UGRP1 may be of value as a therapeutic agent in lung disease.